First, you must familiarize yourself with certain terms that you will come across often. These include:
- Base currency, which refers to the currency that you hold and wish to convert to another currency.
- Quote currency refers to the currency that you are going to purchase.
- Bid price, which is the price that your forex broker is willing to bid or buy your base currency.
- Ask price,which is the price the broker will ask you for in exchange for buying your quote currency. It is always higher than the bid price.
- Spread, which is the difference between the ask price and the bid price, which the broker will commission.
- Pip, which refers to the smallest price change that a given currency exchange rate can make.
- Forex VPS, which is a virtual private server you use for trading currencies safely and smoothly. It is important to get the fastest forex VPS available so that you can trade without issues.
In forex exchange trading, 2 currencies are traded with each other, and the movement of those 2 currencies measures the price of one currency against another. Taking the EUR/USD pair as an example, if the value of the pair increases, it means that the value of the Euro has increased against the US dollar value. And when the value of the pair decreases, it means that the value of the US dollar has increased against the Euro, or the value of Euro has decreased.
In forex trading, traders buy currency pairs with the hope that the value will increase, allowing you to sell at a higher price in the future so that you can make a profit.